There will be a slow, grinding, downward adjustment of all dollar prices

The National Investor/The American Spectator ^ | 2001 | Jude Wanniski

[A. Pole]

In 1995, I predicted that inflation's days were numbered. A year later I warned of a new, more exotic enemy-deflation.

Throughout the boom and bust of the late 1990s and the new millennium, I detailed this foe's attacks as it stomped its way through Asia, Russia, Brazil and the U.S. farm and energy economies, and later as it crashed into Wall Street and Silicon Valley. Now it ravages global telecommunications companies and capsizes every Third World economy that counts its debt in dollars, from Argentina to Zimbabwe.

[Tauzero]

Pretty good, but his analysis of the great depression and crash is dodgy.

"Granted, few people in the market knew why they were selling or why they were forced to sell."

But Jude can read their minds decades later? Give me a break.

Smoot-Hawley had jack all to do with the crash.

[IYAAYAS]

Exactly how does one buy gold, and more importantly how does one sell gold?

I've wanted to buy some gold coins for a while, and I'm actualy ready to do it now. Not so much as an investment, more because I have a small coin collection and some gold coins would be cool.

I'm interested in buying a few thousand dollars worth of gold eagles. The prices I've seen seem to be much higher than the actual price of gold, why is that? When/if I want to sell these coins, who buys them? Will I get the going per ounce price?

Or, when people talk about "buying gold" are they really talking something like gold stocks, or actual gold in hand?

Probably dumb questions but I really don't have a clue.

[Fractal Trader]

Exactly how does one buy gold, and more importantly how does one sell gold?

My experience with physical gold is that there is a high commission (from 20 to 30 per cent and more) trying to sell gold bullion or collectible coins. If I were to invest again, I would look into paper alternatives such as gold stocks, futures, or whatever which had far lower transaction costs.

[eno_]

Isn't that the purpose of non-collectable coins like Krugerrands and those Canadian coins - I forget what they are called - to have low commissions/transaction fees?

[liberalnot]

good post! i profess not to understand it all, but have gained much reading it, and especially looking over the reactions to it.

greenspan was appointed by reagan, passed on by bush 1, to the clintons, whom he seemed to like alot.

it always seemed to me while reading the newspapers that whenever clinton had some problem, greenspan was there to the rescue.

[gcruse]

I won't need my 401k for the forseeable future, am heavy into cash, and retired. Deflation. It's time.

[AdamSelene235]

This is the first thing I ever read that makes me actually want to buy gold without feeling like I've also been sold a tinfoil hat.

Remember shiny side out. Otherwise, it will reflect you brainwaves and roast your noggin.

[AdamSelene235]

KITCO

CALIFORNIA NUMISMATICS

[ggekko]

Thank you for posting this article. This article delineates a devastating critique of Greenspan's mismanagement of the money supply since 1996. By abandoning the price for determining monetary policy Greenspan has come to rely on a series of macroeconomic indicators that no one else in the market is able to determine. This leads to higher transactions costs across the board. The notes from the FOMC meetings are equally as cryptic as Greenspan's Humphrey-Hawkins testimony.

It is becoming glaringly obvious, however, that Greenspan either does not understand or ignores the dynamic interplay between fiscal and monetary policy. Greenspan, whatever his methodology, has missed very key turning point in economy during the last several years.

I hope Greenspan retires and a new Fed chairman is appointed who understands the price rule and interaction of fiscal and monetary policy. Robert Mcteer the current chairman of the Dallas Fed would be a great candidate.

[dogbyte12]

Since there is deflationary pressure in the market... what if the fed printed a whole bunch of money and the tax cuts were accelerated? This would end the deflation no? If the money printing, and the tax cutting weren't overboard it would provide stimulus wouldn't it?

[Old Professer]

He must be the guy who got stuck with all that gold at $800/oz.

[A. Pole]

If the money printing, and the tax cutting weren't overboard it would provide stimulus wouldn't it?

I guess if this money were issued as emergency grants to states, temporary tax credits to the lower income people, public works etc - in order to be spent. But NOT as loans. Loans increase the liability and are given esier to those who do not need them much. As far as I know there is no such mechanism in place or is it? Deficit spending on the other hand means borrowing money and taking them away from the economy at the cost.

[Starwind]

Hoe can you tell if something is manipulated?

In general, it's difficult. Regarding gold, I see smoke and assume there is a fire somewhere.

I read a lot about the economy, markets and money, which crosses paths with gold and I read many varied opinions on gold, a few of which strike a chord and fit with my observations (all 2nd hand via news reports and data feeds) of how gold behaves, which behavior doesn't fit with assessments of what gold ought to do (Gibson's paradox: the empirical observation based on two centuries of experience that under free market conditions the price of gold rises as real long-term interest rates fall), which it hasn't. That is butressed by credible reports of shorting and a lack of transparency on the part of governments and banks regarding their involvement.

It's an informed explanation which best fits the observed facts.

More difficult still is ferreting out the why & who.

[Starwind]

You seem to be knowledgeable and confident in your opinions.

An unwarranted compliment, but thank you regardless.

Would you mind to tell what is your background?

I think more to the point, my background is not formal training or experience in economics, accounting, or finance. I do have a EE and over 25 years in development and management of complex computer systems products and organizations, from which I gained a comfort with math, analysis and information presentation. Lately, I assist VC's with due diligence and valuation of technology and IP assets and M&A.

But mostly, I am a taxpayer and investor, which compels me to understand (and hence study) market behavior, players and strategies, and the economy, policies and laws which drive them.

[Starwind]

You have set a standard in this post that all of us at Free Republic should aim for.

(blush) I would that the standard were higher, but thank you anyway.

[fightu4it]

If it takes 63 paragraphs to explain it it probably has a whole lot of wiggle room.

[Starwind]

In conclusion, the ill advised, ill conceived, always tainted by favoritism or prejudice or just plain stubborness and stupidity management of monetary and fiscal policies needs to be eliminated. What kind of chance to you think this has of going anywhere?

One would hope that Darwinian selection would remove the stupid from the gene pool, but I'm not sure we'll remain solvent that long.

[Southack]

Wanniski is trying to be too clever by half.

Let's keep it simple. Deflation is when your Dollar buys more (i.e. things cost less). On a micro level, this is why you go to a sale at a store (becuase your Dollar buys more when things are on sale).

Inflation is when your Dollar buys less (i.e. things cost more).

Now, Wanniski wants you to think that deflation is bad. Jude points out all sorts of bad things that happen when you have deflation.

But he doesn't point out why it is bad to buy things when they are on sale. In other words, he doesn't explain why deflation is bad. He basicly takes it for granted that deflation is bad, and that is a very dangerous assumption.

In reality, deflation can be a very good thing. We all want our Dollars to buy more things. We negotiate prices down. We go to sales. We clip coupons. We join clubs for group discounts. We go to outlet stores. We buy land/houses in the suburbs rather than pay premiums to live in urban areas.

Where Wanniski gets confused is that he is interchanging the word deflation for the phrase "speed of money", thinking that one always equals the other. They don't.

The problem with the deflation of the Great Depression was NOT that your Dollar bought more and more things each year back then, but rather that the speed of money was getting slower and slower.

In short, the real problem was that people were making fewer transactions. When no one is spending, then no one is buying, investing, or working. That's a problem.

And unless you are discussing the real problem, then your proposed solution has little chance of success.

[A. Pole]

One would hope that Darwinian selection would remove the stupid from the gene pool, but I'm not sure we'll remain solvent that long.

Darvinian selection works fine and as intended. It promotes the IQ around 100 which is quite low and not sufficient for understanding more complex things. But it is optimal for transmission of genes to the next generation.

People with IQ above 130 and below 70 have problems with having children. That is why they are on the margin of the bell curve and fewer in numbers.

[GOPJ]

He got these right too:

Here we are again, though, puzzling at the odd behavior of the financial markets, debating whether the dollar is too strong or too weak, and not quite realizing how heavy a price is being paid by everyone on the planet for not having a fixed standard of value.

...it is simplistic to say the market crashed because silly people bid it up in an outburst of irrational enthusiasm. The big markets in particular tend to incorporate the best information available.